“Waterbed effect” threatens coal exit's climate impact as govt shuns deleting allowances - media

The shut down of German coal plants in 2021 is set to have only a minor impact on European emissions reduction because the government might not report plant decommissionings to the European Commission, newspaper Die Zeit reported. This means saved emissions from plants going offline could simply be shifted to other emitters who benefit from vacant emissions allowances in the European emissions trading system ETS through the so-called waterbed effect. Countries can delete freed ETS allowances when shutting down capacity to avoid this effect, which has to be communicated to the European Commission before the end of the year after which the decommissioning took place. However, the government reportedly does not intend to report 2021 plant closures. According to the newspaper, the government’s motivation could be retaining proceeds from allowances sales or avoiding a price rise in the ETS due to the lower emissions budget, which would add further pressure on already high power prices.

In 2019, Germany’s government promised to delete freed ETS allowances, explicitly to avoid a waterbed effect in the European system. Germany plans to finish its coal exit no later than 2038, with vast capacities slated for decommissioning already by 2030. The government had promised in itscoalition treaty to "ideally" pull forward the coal exit to 2030. In 2022, the government ordered the temporary return of some coal plants to the market to provide more capacity to the power system and lower gas consumption.